They happen. Most of them are avoidable though.
The number one way they are avoidable though, is by doing your bookkeeping.
Plain and simple.
And the fact that most people don’t like to do their bookkeeping is a problem in and of itself.
Math. Spreadsheets. Numbers.
They are all just a headache and overwhelming for most people.
Did I tell you I love all of them?! Like spreadsheets really are my love language!
I have the biggest collection of spreadsheets on my computer. If I told you that I’ve created spreadsheets for packing for trips, for the books I’ve read, for all the audiobooks I have, you’d probably think I’m nuts.
Well, actually, I’m a nerd who loves accounting for business, so you already do think I’m nuts anyway. But I’m okay with that.
I’ve found that the majority of my clients don’t like to look at their bookkeeping for one of two main reasons:
- They collect courses or memberships that they never even touch.
- They collect (or hire) lots of coaches who don’t really help them in their business. They just think they need to keep investing.
And a lot of them collect a lot of books they don’t even open. (Even if you don’t open them, it’s still a business expense in the year you bought the book [slight bonus for being a book collector].)
The most important thing most business owners think is they need only know how much money is coming in and that there is money in the bank account.
Unfortunately, there is always SOOOOO much more to the story of your business. And you need to be looking at all of it, no matter what you are actually collecting in your business.
So how can you actually avoid the tax mistakes that many business owners make?
Plain and simple, it needs to be done. Really don’t want to do it yourself? Hire someone to do it for you (hint, hint, this is something I do; let’s chat to see if we are a good fit).
Your bookkeeping is the number tool you have in your business toolbox to help you prevent any of the tax mistakes from happening.
Bookkeeping will also help you see the health of your business on a regular basis.
Are you actually profiting?
Are you collecting too many courses and coaches?
Where else are you spending money you shouldn’t be spending money?
What products and services are you selling that are selling really good versus what’s not selling?
My favorite part of bookkeeping is the analysis. Yes, like I said above, I am happily taking the title of nerd here.
Hiring the right professional to work with you
You really can hire the right professional or the wrong professional.
The most important part is that the person you hire actually fully understands your business. If you just hire someone based on their cost, then you are most likely hurting your business.
Trying to save money by going with the cheapest option when it comes to your accounting and your legal will just hurt you even more in the long run and end up costing you even more money.
Not only should your professional understand your specific business, they should also understand online business and accounting.
I’ve had clients come to me and say they’ve been turned away from accountants who don’t understand online business, but they also aren’t willing to learn online business. I’m happy they admitted that they didn’t understand the business and force the client to work with them just because they wanted a client. But that also shows you how important it is to find someone to work with you.
You also need to understand the difference between an accountant and a bookkeeper (and should honestly have both on your team).
In order to maximize the amount of deductions you take in your business, your bookkeeping needs to be done regularly.
But also remember that your business should generate a profit in order to not be considered a hobby.
An accountant will usually try to maximize your total profit, which means you’ll end up paying more in tax.
If I was a betting woman, you really don’t want to pay more in tax, so you want to maximize your deductions, which is what a bookkeeper will help you do.
Keep copies of all of your records
It doesn’t matter what it is, if it pertains to your money in your business, keep it.
When you get tax documents, things like 1099’s, bank statements, interest statements, etc., keep them.
And make sure you use the tax documents to file your tax return.
Don’t lie on your taxes
It is done on a regular basis by many people.
They think they can understate their income and not get caught. (I’ve conducted many audits in my career as a government auditor that found understated income.) You’ll for sure get caught. Then not only will you owe the additional tax that is due, but you’ll also owe fines and fees on top of it.
There is also overstating your expenses because you want to pay less in tax. When you get audited, all of that overstatement will be discovered and you’ll owe tax on your actual business profit.
Will the IRS actually catch all of your mistakes and lies? Maybe they will, maybe they won’t. But you need to act like they will catch all of them.
They will for sure catch when you understate your income and you’ve received 1099’s.
It’s a lot less of a hassle and headache if you just report everything correctly from the beginning.
If you owe tax, then you owe tax. You most likely should have been saving money every time you got paid in your business, and paying estimated taxes each quarter. That will make the amount of tax you do have to pay much easier.
Can you avoid the big tax mistakes in your business?
Absolutely. It’s always possible to avoid them.
You really need to start with your bookkeeping and staying on top of that. Complete it on a regular basis (like weekly).
The next step is to be honest with yourself and the government.
And please get a professional on your team that understands your business.
All information on this site is provided for general education purposes only and may not reflect recent changes in federal or state laws. It is not intended to be relied upon as legal, accounting, or tax advice. We strongly encourage you to always consult with a tax or accounting professional about your specific situation before taking any action. Please read our full disclaimer regarding this topic.
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